Everything Blockchain

I guess someone must have told American Banker, and many other publications you put blockchain in the title and people will at least open the article. It seems like more than a third of their content these days are titled with blockchain.

If you haven’t been hiding in a cave, you know there are as many use cases around the blockchain as you can imagine but in the world of finance the four areas that stand out are smart contracts for letters of credit, receivable marketplaces, intercompany funds settlement and supply chain and payable finance.

The bankers I speak to in private tell me while Blockchain is interesting, they don’t like the way people are coming at it. It’s technology looking for a problem in their eyes. For them, its all about the use case.

What I find is that the engagements and proof of concepts so far have been around just a small part of the ecosystem that will need to be involved to make things happen. Most tech companies have a superficial understanding of the complex business processes and actors and incentives that need to drive solutions. They talk about high level benefits of distributed ledger technology without a deep understanding of business process for whatever existing ecosystem they are trying to displace nor the incentives required getting all actors to embrace the solution.

For example, all this talk about tokenizing receivables and getting investors to buy receivable assets ignores the complex world of how investors buy assets, the roles of asset managers, advisors, brokers and others. It’s like asking a bank to sell an oil trade finance deal in Kazakhstan to a pension fund or insurance investor without any understanding of their world.

Frankly, I am tired of hearing about how smart contracts will displace LCs (which are not used by most companies btw to trade). We’ve been down this path with SWIFTs BPO. What we need is a deep understanding of process and a way to embrace all the actors in real discussion. We cannot build technology and hope they come.

There have to be people that can connect the dots out there to enable discussion. This will enable the gradual adoption of DLT around specific use cases. Otherwise, its a lot of promise and hype, which takes me back to the Bank Payment Obligation and Bolero's bill of lading solution from the 90s.

When do others think we will see smart contract, IoT, and tokenization impacting trade finance in a scalable way? Two years? Three? Five? Ten?

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P.s. Here is a small sample of American Banker’s recent articles on blockchain.